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Notes-Wk5 - Section Notes Externalities and Government...

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Section Notes Externalities and Government Interventions February 7 & 8, 2011 1 Consumer and Producer Surplus Question 7, Chapter 6 Consumer Surplus: The di ff erence between the consumer’s benefit for a unit over the cost of purchasing the unit (CS per unit = MB P ) Producer Surplus: The di ff erence between the market value for a unit sold and the cost to the firm of producing the unit (PS per unit = P MC ) Total Economic Surplus: The sum of the surplus gained by the actors in the economy (TS=CS+PS) Question 11, Chapter 6 1
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2 E ciency Allocative: MC to society for the last unit produced = MB to society for the last unit consumed Distributive: MB of the last unit consumed is equal for all consumers Productive: MC of the last unit produced is equal for all producers E ciency means all and only units for which MB MC are traded total economic surplus cannot be larger E ciency does not imply equity. What is the closest notion to equity in economics?
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